BHP Billiton boss delivers cautiously optimistic message

Have we hit the bottom of the commodity cycle? Perhaps. Or at least that seemed to be the message being delivered by Andrew Mackenzie, the chief executive of BHP Billiton plc (LON:BLT), the world’s largest miner.

“We have seen early signs of markets rebalancing,” he said in a statement that accompanied a business update.

BHP, along with other giants of the sector, has been affected by the plunge in commodities from iron ore and copper to coal and oil, which have been hit by over-supply.

The culprit has been cited as China, whose construction boom began to taper five years ago.

However, the OPEC-inspired crash in the oil price has also hit BHP hard as it derives 20% of its earnings from hydrocarbons – mainly onshore in the US.

“Fundamentals suggest both oil and gas markets will improve over the next 12 to 18 months,” Mackenzie told the company’s Australian investors overnight.

“Iron ore and metallurgical coal prices have been stronger than expected, although we continue to expect supply to grow more quickly than demand in the near term.

“Together, the combination of steadier markets, continued capital discipline, improved productivity and increased volumes in copper, iron ore and metallurgical coal should further support strong free cash flow generation this financial year.”

The update revealed that it cut back production in all bar two of its major operations in the quarter ended September.

Output from petroleum was down 15%, copper was off 6% and metallurgical coal was down 4%. Thermal coal production rose 4%, while iron ore shipments were steady year-on-year.

The mining team at Barclays said the numbers were “slightly soft” with the iron ore and petroleum divisions “broadly in line” and base metals weaker than expected.